Process: 119/2018-T

Date: December 14, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 119/2018-T) addresses whether an IMI (Municipal Property Tax) exemption originally granted under the predecessor Municipal Property Contribution regime could benefit from the extension from seven to eight years introduced by Law 64/2008. The claimant received an IMI exemption in 2003 for seven years (2003-2009) for their primary residence. Following amendments to the Tax Benefits Statute (EBF) in 2008 extending the exemption period to eight years, the claimant argued the exemption should extend through 2010. The Portuguese Tax Authority denied this extension, assessing IMI for 2010 totaling €910.89. The claimant challenged this through gracious complaint, hierarchical appeal (both dismissed), and finally CAAD arbitration. The central legal issue involved whether Law 64/2008's extended exemption period applied retroactively to exemptions granted under the old Municipal Property Contribution regime but still in force in 2008. The claimant invoked Article 31(6) of Decree-Law 287/2003, which maintained tax benefits from the predecessor regime under IMI, arguing that denying the extension would be discriminatory and unconstitutional. The case exemplifies the procedural pathway for challenging IMI assessments in Portugal: initial gracious complaint, hierarchical appeal to the Tax Authority, and ultimately arbitration through CAAD. The arbitral tribunal was constituted as a single arbitrator following the claimant's failure to appoint, with the decision extended twice due to complexity, demonstrating CAAD's flexibility under Article 21(2) RJAT in addressing intricate transitional tax law questions.

Full Decision

Arbitral Decision

  1. Report

On 16-03-2018, A..., taxpayer no. ..., with tax domicile at Rua ..., ..., hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to, immediately, the declaration of illegality of the act of dismissal of hierarchical appeal no. ...2011..., and, mediately, the declaration of illegality of the act of assessment of Municipal Property Tax (IMI) for the year 2010, in the total amount of 910.89 €.

The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 19-03-2018 and notified to the Respondent on the same date.

The Claimant did not proceed to appoint an arbitrator, wherefore, under the provisions of article 6, no. 2, paragraph a) of the RJAT, Dr. Suzana Fernandes da Costa was appointed as arbitrator by the President of the Deontological Council of CAAD on 10-05-2018, having the appointment been accepted within the legally prescribed period and terms.

On the same date the parties were duly notified of that appointment and did not manifest any will to refuse the appointment of the arbitrator, pursuant to the provisions of article 11, no. 1, paragraphs a) and b) of the RJAT, combined with articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision of paragraph c), no. 1, of article 11 of the RJAT, the Arbitral Tribunal was constituted on 30-05-2018.

On 04-06-2018, an order was issued ordering notification of the Respondent to, within a period of 30 days, present its answer and, should it wish, request the production of additional evidence and submit to the arbitral tribunal a copy of the administrative file within the period of presentation of the answer.

On 03-07-2018, the Respondent presented its answer and attached to the case file the administrative process.

On 06-07-2018, an order was issued to notify the Claimant to, within 10 days, state whether or not it agrees with the waiver of the hearing provided for in article 18 of the RJAT and with the waiver of arguments.

On 19-09-2018, an order was issued to waive the hearing, taking into account the position of the parties, under the provisions of articles 16, paragraph c) and 19 of the RJAT, and also taking into account the principles of procedural economy and the prohibition of performance of useless acts. In the same order, the parties were ordered to be notified to, if they wished, present written arguments. The date of 20-11-2018 was also set for the rendering of the decision, and the Claimant was warned to attach to the case file, by that date, proof of payment of the subsequent arbitral fee.

Neither of the parties presented arguments.

On 20-11-2018, an order was issued to extend to 29-11-2018 the period for rendering the arbitral decision, given the complexity of the matter, under the provisions of article 21, no. 2 of the Legal Regime of Tax Arbitration approved by Decree-Law no. 10/2011 of 20 January.

On 29-11-2018, a new order was issued extending to 14-12-2018 the deadline for issuing the decision, taking into account the complexity of the matter and the fact that the analysis of the substantive issue and existing case law had not been completed, in accordance with the provisions of article 21, no. 2 of the Legal Regime of Tax Arbitration.

The parties possess legal personality and capacity and are legitimate (articles 4 and 10, no. 1 and 2 of the RJAT and article 1 of Administrative Order no. 112-A/2011 of 22 March).

The arbitral request is timely, under the terms of article 10, no. 1, paragraph a) of Decree-Law no. 10/2011 of 20 January and article 102, no. 1, paragraph a) of the Tax Procedure and Process Code.

The case does not suffer from nullities and no preliminary matters were raised.

  1. Cause of Action

The Claimant begins by stating that, not agreeing with the assessment of IMI for the year 2010, he filed a gracious complaint of said assessment with the Tax Office of Vila Nova de Gaia .... Said complaint was subject to a decision of dismissal. Faced with such decision, the Claimant states that he filed a hierarchical appeal, whose decision was also one of dismissal of the request.

The Claimant alleges that on 11-09-2003, he filed a request for exemption from Municipal Property Contribution (Contribuição Autárquica), pursuant to article 42 of the Tax Benefits Statute (EBF). This request was subject to a dismissal order on 14-11-2003, with the Tax and Customs Authority (AT) having recognized an exemption period of seven years, beginning in 2003 and ending at the end of 2009.

The Claimant states that, following the amendments to the EBF resulting from Law no. 64/2008 of 05-12, the exemption period for IMI of the urban property inscribed in the urban property tax roll under article ..., changed from seven to eight years, ending, therefore, at the end of 2010 and not at the end of 2009.

Thus, for the Claimant, the amendment to the EBF caused by Law no. 64/2008 applied to exemptions still in force or extinguished in 2008.

According to the Claimant's understanding, the benefit would apply to exemptions in force in 2008, regardless of whether the exemption had been granted to a property valued under the terms of the IMI Code or under the terms of the Code of Property Contribution and Agricultural Industry Tax (CCPIIA), since article 46, no. 1 of the EBF would make no restrictions in this regard.

He therefore understands that the said normative provisions applied to his situation, and that the IMI exemption would only end at the end of 2010, and not in 2009.

The Claimant further states that in 2011 he proceeded with a request for assessment of the property in question, under the terms of the IMI Code, with the taxable property value (VPT) changing from 130,126.47 € to 128,300.00 €.

The Claimant alleges that in order for the eight-year IMI exemption to apply, it is irrelevant that the existing exemption had been considered in the context of Municipal Property Contribution, as the AT alleges to justify the assessment issued to the Claimant regarding the property in question. For this, he states that IMI came to replace the Municipal Property Contribution, with the tax framework having been maintained intact as a municipal tax intended to tax the ownership of immovable property.

The Claimant states that if it is to be presumed that he becomes a taxpayer subject to the new IMI tax, then he will be able to be a subject of tax benefits, provided that the requirements contained in the EBF are met.

On the other hand, the Claimant makes reference to no. 6 of article 31 of Decree-Law no. 287/2003 of 12-11 (instrument which approved the IMI Code), which states that "the tax benefits relating to the municipal property contribution remain in force, now referred to IMI". For this reason, the Claimant understands that the AT's decision not to be able to benefit from the extension of the exemption by the mere fact that it had been recognized in the context of Municipal Property Contribution is devoid of sense.

On this issue, the Claimant further states that in the years 2004 to 2009 he benefited from the IMI exemption, although the exemption was initially referred to Municipal Property Contribution.

For the Claimant, excluding exemptions granted within the validity of Municipal Property Contribution that were still in force in 2008 would be discriminatory, illegal and fiscally unjust and violative of the most basic constitutional principles.

In conclusion, the Claimant understands that he should benefit from the extension of the exemption period of the tax, since it is an urban property subject to IMI, is intended for his own and permanent residence, and at the time of entry into force of the law, he enjoyed the tax benefit of IMI exemption.

The Claimant further states that the AT made an error regarding the factual assumptions and erroneous qualification of the tax fact, and the assessment in question should be annulled.

And for the Claimant, the AT revoked a tax benefit of a taxpayer without having previously invoked any right of hearing regarding that decision to revoke the benefit, and the assessment in question should be annulled for omission of legal formality, under the terms of article 60, no. 1, paragraph c) of the LGT.

The Claimant declares that he proceeded with payment of the tax and requests that the AT be condemned to refund the improperly paid tax, plus compensatory interest, under the terms of articles 100 and 43 of the LGT and 61 of the CPPT.

  1. Response of the Respondent

The Tax and Customs Authority presented a response alleging the legal conformity of the tax act object of the arbitral request.

The AT begins by stating that if the Claimant intended the application of the one-year extension of the IMI exemption, he had to be necessarily an IMI taxpayer. It also states that article 5, no. 2 of Law no. 64/2008 applies to exemptions established for IMI and not to exemptions of Municipal Property Contribution, insofar as the purpose of the legislative amendment to article 46 was to extend the duration of exemptions that had been granted under the IMI Code, and which were of 3 or 6 years.

The AT further alleges that the property in question was valued in accordance with the rules of the Municipal Property Contribution Code and not on the basis of the rules defined in articles 37 to 44 of the IMI Code, with the latter, for the AT, constituting a major innovation in relation to the previous system.

Regarding the omission of legal formality concerning the alleged lack of prior hearing, the AT states that from paragraph c) of no. 1 of article 60 of the LGT, the obligation to hear taxpayers in this decision does not follow. Thus, in the AT's understanding, there was no violation of the LGT.

In relation to the request for compensatory interest made by the Claimant, the AT states that the request should be dismissed as it did not commit any error of law.

Finally, the AT states that there is no interest and usefulness for holding the hearing provided for in article 18 of the RJAT and that it does not intend to present arguments, requesting waiver of the hearing.

  1. Factual Matters

4.1. Proven Facts:

Based on the documentary evidence produced and the position of the parties stated in the procedural documents, the following facts are considered proven and of interest for the decision of the case:

  • The Claimant is the owner of the urban property inscribed in the urban property tax roll under article ..., located in the parish of ..., municipality of Vila Nova de Gaia.

  • The Claimant carried out construction works on the said property, which were completed on 14-08-2003.

  • On 28-08-2003, the Claimant submitted form 129, having the property been subject to assessment under the terms of the CCPIIA, and the VPT was set at 121,770.00 €, as per documents 1 and 2 attached to the arbitral request.

  • On 11-09-2003, the Claimant filed the request for exemption from Municipal Property Contribution, under the terms of article 42 of the EBF, as per document 3 attached to the arbitral request.

  • The above-mentioned exemption request was subject to a grant order on 14-11-2003, with the AT having recognized an exemption period of seven years, beginning in 2003 and ending at the end of 2009, as per document 4 attached to the arbitral request.

  • The Claimant was notified of IMI assessment no. 2010..., for the year 2010, in the amount of 910.89 €, payable in two installments, one until 30-04-2011 and another until 30-09-2011, as per documents 5 and 7 attached to the arbitral request.

  • The Claimant proceeded with payment of the two installments relating to the above-mentioned assessment, as per document 7 attached to the arbitral request.

  • The Claimant filed a gracious complaint of the above-identified assessment, which was expressly dismissed.

  • The Claimant filed a hierarchical appeal of the decision dismissing the gracious complaint, which was also subject to a decision of dismissal, as per document 6 attached to the arbitral request.

  • The Claimants filed the present request for arbitral pronouncement on 16-03-2018.

No other facts with relevance to the decision of the case were proven.

4.2. Unproven Facts

No facts were verified that were not proven.

4.3. Justification of the Proven Factual Matters:

The arbitrator's conviction was based on the documents attached to the case file by the Claimant and on the position of the parties as shown in the procedural documents produced.

  1. Matters of Law:

5.1. Object and Scope of the Present Case

The essential legal question that arises in this case is whether the Claimant will be entitled to eight years of exemption from municipal property contribution/IMI, by virtue of the entry into force of Law no. 64/2008 of 5 December.

Let us examine this:

The Claimant requested exemption from municipal property contribution on 11-09-2003, having the request been granted for a period of seven years, under the terms of article 42 of the EBF.

In the same year of 2003, the Municipal Property Contribution Code was replaced by the IMI Code, with the publication of Decree-Law no. 287/2003 of 12 November, an instrument which carried out the reform of property taxation.

Article 31, no. 1 of Decree-Law no. 287/2003 of 12 November provided that:

"1 – As from the date of entry into force of the IMI Code, the Municipal Property Contribution Code, approved by Decree-Law no. 442-C/88 of 30 November, and the Property Contribution Code and Agricultural Industry Tax Code, approved by Decree-Law no. 45104 of 1 July 1963, are repealed, to the extent still in force, with the municipal property contribution being replaced by municipal property tax (IMI) for all legal purposes".

In turn, no. 6 of the said article 31 of Decree-Law no. 287/2003 of 12 November states that:

"6 – Tax benefits relating to municipal property contribution remain in force, now referred to IMI, as well as those relating to municipal property transfer tax established in legislation outside the Code approved by decree-law no. 41969 of 24 November 1958, and in the Tax Benefits Statute, which are now referred to IMT".

Later, Law no. 64/2008 of 5 December amended the wording of no. 5 of article 46 of the EBF, an article which provides for IMI exemption, with the same now having the following wording:

"5 – For the purposes of the provisions of no. 1 and 3, the period of exemption to be granted is determined in accordance with the following table:

Taxable Value (in euros) | Exemption Period (in years) for Own and Permanent Residence and Rental for Residential Purposes
Up to € 157,500 | 8
More than € 157,500 and up to € 236,250 | 4

On the other hand, no. 2 of article 5 of the said Law no. 64/2008 states that "the amendment to the exemption period referred to in article 46 of the Tax Benefits Statute, as worded by this law, applies to exemptions in which the period of six or three years of the benefit is still in force or was extinguished in 2008" (our emphasis).

And it is here that the different interpretation of the parties lies.

For the Claimant, this wording would imply that in 2010 he would be entitled to IMI exemption. On the contrary, the AT understands that the exemption which was granted in 2003 lasted for seven years and ended at the end of 2009, and that the one-year extension provided for in Law no. 64/2008 does not apply because the property in question was valued under the terms of municipal property contribution.

The taxable property value of the property in question being 121,770 € and the IMI exemption of the Claimant being in force in 2008, the same understood that the exemption would have a duration of 8 years, that is, one more year to which he would be entitled if Law no. 64/2008 had not been published.

Tax norms must be interpreted in accordance with the general elements of interpretation provided for in the Civil Code (article 11, 1 LGT and article 9 of the Civil Code). One of these elements is, therefore, the grammatical element.

Looking at the letter of the law (which we cannot ignore) the legislator explicitly refers to "the amendment to the exemption period referred to in article 46 of the Tax Benefits Statute, as worded by this law, applies to exemptions in which the period of six or three years of the benefit is still in force or was extinguished in 2008". It makes no reference to exemptions for the period of seven years. And in the matter of tax benefits we cannot make use of analogy (article 11, no. 4 LGT), and the use of extensive interpretation is likewise restricted.

As stated by Ana Paula Dourado in "O princípio da legalidade fiscal" (The Principle of Tax Legality), Almedina, page 126, "the tax benefit introduces perverse phenomena of revenue erosion and restricts the application of material tax principles, so it must be made public, and should therefore be subject to parliamentary law reserve".

Thus, we understand that the thesis according to which the benefit of extension of the tax benefit would also apply to exemptions previously in force for the period of seven years does not find expression in the letter of the law.

REGARDING THE ALLEGED VIOLATION OF THE RIGHT TO PARTICIPATION

Article 60 of the LGT in the version in force in 2010 stated:

"1 - Participation of taxpayers in the formation of decisions affecting them may take place, whenever the law does not provide otherwise, by any of the following means:

c) Right to hearing before the revocation of any benefit or administrative act in tax matters;"

Now, in this case, there was no revocation of a benefit but rather the non-application of an extension of a benefit due to a legal amendment, for which reason we understand that there is no duty of prior hearing in the terms of article 60 LGT.

Being thus, in our view, there was no violation of a legal formality, and the assessment should not be annulled.

  1. Compensatory Interest

The Claimant requests that the Respondent be condemned to reimburse the improperly paid tax, plus compensatory interest, under the terms of article 43, no. 1 of the LGT.

Given that the declaration of illegality of the assessment in question fails in the present proceedings, the request for condemnation of the AT to reimburse the amount paid and to pay compensatory interest is likewise dismissed.

  1. Decision

In light of the foregoing, it is determined:

  • To judge totally unfounded the request formulated by the Claimant, maintaining in the legal order the IMI assessment no. 2010..., for the year 2010, in the amount of 910.89 €;

  • To judge unfounded the request for condemnation of the Tax and Customs Authority to reimburse to the Claimant the amount of tax paid and the payment of compensatory interest;

  • To condemn the Claimant to payment of the costs of the present case.

  1. Value of the Case:

In accordance with the provisions of article 306, no. 2 of the CPC and 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at 910.89 €.

  1. Costs:

Under the terms of article 22, no. 4 of the RJAT and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at 306 €, to be borne by the Claimant, in accordance with article 22, no. 4 of the RJAT.

Let notification be made.

Lisbon, 14 December 2018.

Text prepared by computer, under the terms of article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference of article 29, no. 1, paragraph e) of the Tax Arbitration Regime, revised by me.

The sole arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

What is the IMI (Imposto Municipal sobre Imóveis) tax exemption and who qualifies for it in Portugal?
The IMI (Imposto Municipal sobre Imóveis) tax exemption is a benefit available under the Portuguese Tax Benefits Statute (EBF) for certain urban properties. Article 46 of the EBF provides an exemption period for properties used as the owner's primary permanent residence. Originally set at seven years from the property valuation date, Law 64/2008 extended this to eight years. To qualify, the property must be for own and permanent habitation, properly valued under the IMI Code, and meet the requirements specified in the EBF. The exemption applies from the year the property is acquired or construction is completed, requiring timely application to the Tax Authority. As demonstrated in this case, the exemption historically applied under the predecessor Municipal Property Contribution regime continues under IMI pursuant to transitional provisions in Decree-Law 287/2003.
How can a taxpayer challenge an IMI tax liquidation through CAAD arbitral proceedings?
A taxpayer can challenge an IMI tax liquidation through CAAD (Centro de Arbitragem Administrativa) arbitral proceedings by first exhausting administrative remedies, then filing a request for arbitration. The process begins with a gracious complaint (reclamação graciosa) to the relevant Tax Office within the statutory deadline. If dismissed, the taxpayer may file a hierarchical appeal (recurso hierárquico) to the Tax Authority. Following dismissal of the hierarchical appeal, the taxpayer has standing to submit a request for constitution of an arbitral tribunal to CAAD under Article 10(1)(a) of the RJAT (Legal Regime of Tax Arbitration). The request must specify the contested acts and legal grounds. As shown in this case, CAAD provides an alternative to judicial courts for resolving tax disputes, with arbitrators appointed according to RJAT procedures and decisions rendered within legally defined timeframes, subject to extension for complexity.
What is the process for filing a hierarchical appeal (recurso hierárquico) against an IMI tax assessment in Portugal?
The process for filing a hierarchical appeal against an IMI assessment begins after dismissal of a gracious complaint. Under the Tax Procedure and Process Code (CPPT), a taxpayer dissatisfied with an IMI liquidation must first file a reclamação graciosa with the competent Tax Office within the statutory period. Upon receiving a dismissal decision, the taxpayer may then file a recurso hierárquico to the hierarchical superior within the Tax Authority structure, typically within 30 days of notification of the dismissal. The hierarchical appeal must identify the contested decision, present legal and factual grounds, and specify the relief sought. The Tax Authority reviews the legality of the original decision and the underlying assessment. If the hierarchical appeal is dismissed, as occurred in this case, the taxpayer may seek judicial review through administrative courts or, alternatively, pursue arbitration through CAAD under Article 10(1)(a) RJAT within the applicable deadline established in Article 102(1)(a) CPPT.
What are the legal deadlines and procedural steps in CAAD tax arbitration cases under the RJAT framework?
CAAD tax arbitration cases under the RJAT framework follow specific procedural steps and deadlines. After accepting the arbitration request, the CAAD President notifies the Tax Authority, which has 30 days to submit its answer and the administrative file (Article 17 RJAT). The arbitral tribunal is constituted within specified timeframes, either with arbitrators chosen by parties or appointed by CAAD authorities as occurred here under Article 6(2) RJAT. Following constitution, confirmed on day 15 after arbitrator notification absent objections (Article 11(1) RJAT), the tribunal may order additional evidence and can waive hearings with party consent under Articles 16(c) and 19 RJAT, applying principles of procedural economy. The decision must be rendered within the deadline set by the tribunal, typically allowing parties opportunity for written arguments. Article 21(2) RJAT permits deadline extensions for complexity, as demonstrated by two extensions in this case. The arbitral fee must be paid by the deadline set for the decision.
Can a property owner request a declaration of illegality for an IMI tax liquidation act through arbitration?
Yes, a property owner can request a declaration of illegality for an IMI tax liquidation act through CAAD arbitration. Under Article 2(1)(a) of the RJAT, tax arbitration encompasses challenges to 'acts of liquidation' of taxes. As demonstrated in this case, the claimant sought both immediate declaration of illegality of the hierarchical appeal dismissal and mediate declaration of illegality of the IMI assessment for 2010. To proceed, the property owner must have legal standing and legitimate interest, satisfy procedural prerequisites including exhaustion of administrative remedies (gracious complaint and hierarchical appeal), and file within statutory deadlines under Article 10(1) RJAT and Article 102(1)(a) CPPT. The arbitral tribunal has jurisdiction to review the legality of the liquidation act, examining whether the Tax Authority correctly applied substantive tax law, properly interpreted tax benefits, and accurately determined factual circumstances. CAAD arbitration provides an efficient alternative to traditional judicial review for contesting IMI assessments, with specialized arbitrators and streamlined procedures under the RJAT framework.